SECTIONS 1010-1062 - California Statutes

INSURANCE CODE

SECTION 1010-1062

1010. (a) The provisions of this article shall apply to all
persons, except the State Compensation Insurance Fund, subject to
examination by the commissioner, or purporting to do insurance
business in this state, or in the process of organization with intent
to do such business therein, or from whom the commissioner's
certificate of authority is required for the transaction of business,
or whose certificate of authority is revoked or suspended.
(b) Notwithstanding subdivision (a), if any of the conditions set
forth in Section 1011 exists with respect to the State Compensation
Insurance Fund, and the commissioner would otherwise file a verified
application with the superior court or proceed under Section 1013
against the fund, the commissioner shall instead issue a report to
the Governor, the President pro Tempore of the Senate, and the
Speaker of the Assembly setting forth the conditions that exist and
recommending a course to remedy those conditions. The Governor, in
consultation with the Legislature, shall direct a course of action to
be implemented by the fund's board of directors, or if additional
legislative action is necessary, recommend a course of action to the
Legislature, or both.

1011. The superior court of the county in which the principal
office of a person described in Section 1010 is located shall, upon
the filing by the commissioner of the verified application showing
any of the following conditions hereinafter enumerated to exist,
issue its order vesting title to all of the assets of that person,
wheresoever situated, in the commissioner or his or her successor in
office, in his official capacity as such, and direct the commissioner
forthwith to take possession of all of its books, records, property,
real and personal, and assets, and to conduct, as conservator, the
business of said person, or so much thereof as to the commissioner
may seem appropriate, and enjoining said person and its officers,
directors, agents, servants, and employees from the transaction of
its business or disposition of its property until the further order
of said court:
(a) That such person has refused to submit its books, papers,
accounts, or affairs to the reasonable inspection of the commissioner
or his or her deputy or examiner.
(b) That such person has neglected or refused to observe an order
of the commissioner to make good within the time prescribed by law
any deficiency in its capital if it is a stock corporation, or in its
reserve if it is a mutual insurer.
(c) That such person, without first obtaining the consent in
writing of the commissioner, has transferred, or attempted to
transfer, substantially its entire property or business or, without
such consent, has entered into any transaction the effect of which is
to merge, consolidate, or reinsure substantially its entire property
or business in or with the property or business of any other person.
(d) That such person is found, after an examination, to be in such
condition that its further transaction of business will be hazardous
to its policyholders, or creditors, or to the public.
(e) That such person has violated its charter or any law of the
state.
(f) That any officer of such person refuses to be examined under
oath, touching its affairs.
(g) That any officer or attorney in fact of such person has
embezzled, sequestered, or wrongfully diverted any of the assets of
such person.
(h) That a domestic insurer does not comply with the requirements
for the issuance to it of a certificate of authority, or that its
certificate of authority has been revoked; or
(i) That the last report of examination of any person to whom the
provisions of this article apply shows such person to be insolvent
within the meaning of Article 13 (commencing with Section 980),
Chapter 1, Part 2, Division 1; or if a reciprocal or interinsurance
exchange, within the applicable provisions of Section 1370.2, 1370.4,
1371, or 1372; or if a life insurer, within the applicable
provisions of Sections 10510 and 10511.

1011.5. The consent described in Section 1011(c) shall be obtained
by filing an application with the commissioner in a form to be
prescribed by him accompanied by such additional information
concerning the insurer, its condition and affairs as the commissioner
requires.
A fee of two thousand six hundred fifty-five dollars ($2,655)
shall be paid to the commissioner for the filing of the application.

1012. Said order shall continue in force and effect until, on the
application either of the commissioner or of such person, it shall,
after a full hearing, appear to said court that the ground for said
order directing the commissioner to take title and possession does
not exist or has been removed and that said person can properly
resume title and possession of its property and the conduct of its
business.

1013. Whenever it appears to the commissioner that any of the
conditions set forth in section 1011 exist or that irreparable loss
and injury to the property and business of a person specified in
section 1010 has occurred or may occur unless the commissioner so act
immediately, the commissioner, without notice and before applying to
the court for any order, forthwith shall take possession of the
property, business, books, records and accounts of such person, and
of the offices and premises occupied by it for the transaction of its
business, and retain possession subject to the order of the court.
Any person having possession of and refusing to deliver any of the
books, records or assets of a person against whom a seizure order has
been issued by the commissioner, shall be guilty of a misdemeanor
and punishable by fine not exceeding one thousand dollars or
imprisonment not exceeding one year, or both such fine and
imprisonment.

1014. Whenever the commissioner makes any seizure as provided in
section 1013, it shall, on the demand of the commissioner, be the
duty of the sheriff of any county of this State, and of the police
department of any municipal corporation therein, to furnish him with
such deputies, patrolmen or officers as may be necessary to assist
the commissioner in making and enforcing any such seizure.

1015. Immediately after such seizure, the commissioner shall
institute a proceeding as provided for in section 1011 and thereafter
shall proceed in accordance with the provisions of this article.

1016. If at any time after the issuance of an order under section
1011, or if at the time of instituting any proceeding under this
article, it shall appear to the commissioner that it would be futile
to proceed as conservator with the conduct of the business of such
person, he may apply to the court for an order to liquidate and wind
up the business of said person. Upon a full hearing of such
application, the court may make an order directing the winding up and
liquidation of the business of such person by the commissioner, as
liquidator, for the purpose of carrying out the order to liquidate
and wind up the business of such person.

1017. (a) In the commissioner's application for an order for the
liquidation of a domestic corporation, or at any time thereafter, the
commissioner may apply for, and the court shall make, an order
dissolving the corporation.
(b) At any time during a proceeding for the liquidation of a
domestic corporation authorized under Section 1016, the commissioner
may apply for, and the court shall make, an order to permit the
commissioner to sell the charter and license of that corporation
while continuing to administer and distribute the remaining assets
according to the provisions of this article. The order shall provide
that the liabilities of the domestic corporation may not be
transferred with the charter and license. In continuing the
administration and distribution of assets the commissioner need not
establish a liquidating trust or other, similar entity.

1018. The recording in the office of a county recorder of any
county in the State of an order entered pursuant to section 1011,
1016 or 1017 shall impart the same notice that would be imparted by
the recordation of a deed, bill of sale or other evidence of title
duly executed by such person.

1019. Upon the issuance of an order of liquidation under section
1016, the rights and liabilities of any such person and of creditors,
policyholders, shareholders and members, and all other persons
interested in its assets, including the State of California, shall,
unless otherwise directed by the court, be fixed as of the date of
the entry of the order in the office of the clerk of the county
wherein the application was made.

1020. Upon the issuance of an order either under Section 1011 or
1016, or at any time thereafter, the court shall issue such other
injunctions or orders as may be deemed necessary to prevent any or
all of the following occurrences:
(a) Interference with the commissioner or the proceeding.
(b) Waste of assets of such person.
(c) The institution or prosecution of any actions or proceedings.
(d) The obtaining of preferences, judgments, attachments, or other
liens against such person or its assets.
(e) The making of any levy against any such person or its assets.
(f) The sale or deed for nonpayment of taxes or assessments levied
by any taxing agency of property:
(1) Owned by such person.
(2) Upon which such person holds an encumbrance.
(3) Upon which such person has prior thereto commenced an action
to foreclose any deed of trust or mortgage or has exercised the power
of sale under any trust deed or mortgage which sale or foreclosure
proceedings have not yet been completed or upon which no trustee's
deed or judgment of court or sheriff's certificate of sale has been
issued. "Taxing agency" as used in this section has the meaning
ascribed to it by Section 121 of the Revenue and Taxation Code. The
injunctions or orders authorized by this subdivision may be modified,
dissolved or rescinded by the court on motion of the commissioner,
the State Controller, the person charged with the collection of taxes
or assessments on such property, or any person beneficially
interested in the property. The recording in the office of the county
recorder of any county in the State of an order or injunction issued
pursuant to this section, shall constitute service of such order or
injunction upon any taxing agency with respect to property or
interests therein located in such county.
(g) Any managing general agent or attorney in fact from
withholding from the commissioner any books, records, accounts,
documents or other writing relating to the business of such person;
provided, however, that, if by contract or otherwise any of the same
are the property of such an agent or attorney, the same shall be
returned when no longer necessary to the commissioner or at any time
the court after notice and hearing shall so direct.

1021. (a) Upon the making of an order to liquidate the business of
such person, the commissioner shall publish notice to its
policyholders, creditors, shareholders, and all other persons
interested in its assets. The order and the notice shall require
claimants to file their claims with the commissioner, together with
proper proofs thereof, within six months to one year, at the
commissioner's discretion, after the date of first publication of
such notice, in the manner specified in this article.
(b) The time period specified in subdivision (a) shall not apply
to the California Insurance Guarantee Association or the California
Life and Health Insurance Guarantee Association provided it files
with the commissioner a notice of possible claim within such
six-month period and files actual claim or claims within such periods
of time as may be permitted by order of court.
(c) Notwithstanding the provisions of subdivision (a), both of the
following apply:
(1) If the commissioner determines that the business subject to
liquidation order possesses, or is likely to possess, insufficient
assets to permit significant distribution to a person interested in
those assets, the commissioner may decline to handle a claim
submitted pursuant to subdivision (a), as long as the notice
requirements of subdivision (a) and Section 1022 are observed.
(2) If the commissioner reasonably determines that the business
subject to liquidation order possesses, or is likely to possess,
insufficient assets to permit significant distribution of funds to
pay the expenses of administration under this article, as provided in
paragraph (1) of subdivision (a) of Section 1033, the commissioner
may decline to continue, and may abandon, the insolvency proceeding
upon providing notice pursuant to subdivision (a) and Section 1022.

1022. Such notice shall be published in a newspaper of general
circulation, published in the county in which the proceeding is
pending, and in the Counties of Alameda, Los Angeles, Sacramento, San
Diego, San Francisco, and Santa Clara, not less than once a week for
four successive weeks. A copy of the notice, accompanied by an
affidavit of due publication, including a statement of the date of
first publication, shall be filed with the clerk of the court.

1023. A claim must set forth, under oath, on the form prescribed by
the commissioner:
(a) The particulars thereof, and the consideration therefor.
(b) Whether said claim is secured or unsecured, and, if secured,
the nature and amount of such security.
(c) The payments, if any, made thereon.
(d) That the sum claimed is justly owing from such person to the
claimant.
(e) That there is no offset to the claim.
(f) Such other data or supporting documents as the commissioner
requires.

1024. Unless such claim is filed in the manner and within the time
provided in section 1021, it shall not be entitled to filing or
allowance, and no action may be maintained thereon. In the
liquidation, pursuant to the provisions of this article, of any
domestic insurer which has issued policies insuring the lives of
persons, the commissioner shall, within thirty days after the last
day set for the filing of claims, make a list of the persons who have
not filed proofs of claim with him and to whom, according to the
books of said insurer, there are amounts owing under such policies,
and he shall set opposite the name of each person the amount so owing
to such person. Each person whose name shall appear upon said list
shall be deemed to have duly filed, prior to the last day set for the
filing of claims, a claim for the amount set opposite his name on
said list.

1025. Claims founded upon unliquidated or undetermined demands must
be filed within the time limit provided in this article for the
filing of claims, but claims founded upon such demands shall not
share in any distribution to creditors of a person proceeded against
under section 1016 until such claims have been definitely determined,
proved and allowed. Thereafter, such claims shall share ratably with
other claims of the same class in all subsequent distributions.
An unliquidated or undetermined claim or demand within the meaning
of this article shall be deemed to be any such claim or demand upon
which a right of action has accrued at the date of the order of
liquidation and upon which the liability has not been determined or
the amount thereof liquidated.

1025.5. Notwithstanding the provisions of Sections 1021 to 1025,
inclusive, the commissioner may, in lieu of requiring claimants to
file separate claims:
(a) File a claim himself or herself on behalf of all claimants for
return premiums.
(b) Permit any assignee of the right of the insured to a return
premium by virtue of a valid assignment, as security or otherwise,
made prior to an order under Section 1011 or a seizure under Section
1013, whichever is earlier in time in the particular case, to file
one claim as assignee on behalf of all insureds having assigned
rights to the assignee, which shall set forth such information as may
be required under Section 1023.
(c) Permit the California Insurance Guarantee Association under
subdivision (b) of Section 1063.4, or the California Life and Health
Insurance Guarantee Association under paragraph (1) of subdivision
(k) of Section 1067.07 to file one claim, for its association,
combining all assigned claims and setting forth the information that
the commissioner may require under Section 1023.

1026. Whenever any person has a cause of action against an insured
and such cause is covered by a liability policy, such person, if the
insurer is adjudged insolvent, may file a claim in the liquidation
proceeding even if the claim is undetermined or unliquidated.

1026.1. Where a claim arising out of a policy of insurance has been
filed by a third party and approved by the liquidator and such claim
has subsequently been paid or satisfied, either wholly or in part,
by the transfer of anything of value, either voluntarily or by
process, from the insured of the person in liquidation to such third
party, then upon the filing with the liquidator of proof of the
making and value of such transfer, to the extent and in the manner
required by the liquidator, the insured shall be subrogated to the
rights of the third party claimant to the extent that the claim has
been satisfied and discharged, but the rights of the insured shall
not exceed the face value of such claim and if the insured has
theretofore filed a claim covering the same subject matter, he is
entitled to only one recovery.

1027. A claim by a third party founded upon an insurance policy may
be allowed by the liquidator without requiring such claim to be
reduced to judgment, provided it can be reasonably inferred from the
proof presented that the claimant would be able to obtain a judgment
upon his cause of action against the insured and that such judgment
would represent a liability of the person in liquidation under the
policy of insurance upon which such claim is founded.
In the event several claims founded upon one policy or bond are
filed, and the aggregate amount of such claims exceeds the liability
limit of said policy or bond, and one or more of such claims is
unliquidated and undetermined, then all of such claims shall be
deemed unliquidated and undetermined; provided, however, that should
one or more of said claims become determined and proved within the
time provided in this article, the liquidator, upon any distribution
to creditors, shall impound the distribution percentage of the face
amount of said claim or claims so determined and proved, not
exceeding the policy or bond limit, and upon such claim or claims
becoming liquidated as to amount, the liquidator shall release to
such claimant the distribution percentage of the final liquidated
value of such claims out of the funds so impounded.

1028. A judgment taken by default, or by collusion, against an
insured shall not be considered as evidence, in the liquidation
proceeding, either of the liability of such insured to such claimant
upon such cause of action or of the amount of damages to which such
claimant is entitled.

1029. A claim of a secured claimant shall not be allowed in a sum
greater than the excess over the value of the security of the amount
for which the claim would be allowable if unsecured, unless the
claimant surrenders the security to the liquidator. Upon such
surrender the claim may be allowed in the full amount for which it is
valued.

1030. The value of the security to be credited upon such claim
shall be determined by an appraiser appointed by the liquidator and
approved by the court. Such claimant shall elect to accept the
security or to release it to the liquidator.

1030.5. (a) The liquidator may require, as a condition of payment
of the final liquidation dividend to a lender, or his assignee, who
has filed a claim for an unearned premium as an assignee of the
insured for valuable consideration, that such assignee of the insured
shall assign to the liquidator all his right, title, and interest in
any unsatisfied debt of the insured to such assignee, pertaining to
policies of the insolvent insurer, remaining unpaid after crediting
the final liquidation dividend, if the amount of such unsatisfied
debt is less than one hundred dollars and one cent ($100.01).
The liquidator may also require, as condition precedent, the
delivery to him of all the documents giving rise to such debt.
The liquidator, in his sole discretion, may determine whether or
not it will be feasible to attempt to collect any such assigned debt.
If he determines not to pursue collection of any such debt, he shall
file a declaration to that effect with the liquidation court and be
relieved of any further responsibility in respect to such debt.
(b) As used in this section, "insured" means a natural person who
purchased insurance from the insolvent insurer for personal, family,
or household purposes.

1030.6. In any proceeding under this article, no agent shall be
liable to the liquidator or conservator for unearned premiums
uncollected by the agent, or unearned commissions uncollected by the
agent, arising from an insolvency of an insurer.

1031. Mutual debts or mutual credits, whether arising out of one or
more contracts between the person in liquidation under Section 1016
and any other person, shall be set off and the balance only shall be
allowed or paid, except with respect to any of the following
obligations as described in subdivisions (a) to (d), inclusive:
(a) The obligation of the person in liquidation to such other
person does not entitle such other person claiming such set-off to
share as a claimant in the assets of the person in liquidation.
(b) The obligation of the person in liquidation to the other
person was purchased by, or transferred to, the other person.
(c) The obligation of the other person to the person in
liquidation is to pay an assessment levied against the other person
or to pay a balance upon a subscription for shares of the capital
stock of the person in liquidation.
(d) The obligations between the other person and the person in
liquidation arise from business where either the person in
liquidation or the other person has assumed risks and obligations
from the other party and then has ceded back to that party
substantially the same risks and obligations.
Notwithstanding the foregoing, a set-off of amounts due on
obligations arising from those contracts shall be allowed if the
balance arises from contracts that were entered into, renewed, or
extended with the express written approval of the commissioner.

1032. When a claim is rejected by the commissioner, written notice
of rejection shall be given by mail, addressed to the claimant at the
address set forth in his claim. Within thirty days after the mailing
of the notice the claimant may apply to the court in which the
liquidation proceeding is pending for an order to show cause why the
claim should not be allowed.

1033. (a) Claims allowed in a proceeding under this article shall
be given preference in the following order:
(1) Expense of administration.
(2) All claims of the California Insurance Guarantee Association
or the California Life and Health Insurance Guarantee Association,
and associations or entities performing a similar function in other
states, together with claims for refund of unearned premiums and all
claims under insurance and annuity policies or contracts, including
funding agreements, of an insolvent insurer that are not covered
claims.
The following claims are excluded from this priority:
(A) Any obligations of the insolvent insurer arising out of any
reinsurance contracts, as well as obligations incurred after the
expiration date of the policy or after the insurance policy has been
replaced by the insured or canceled at the insured's request, or
after the policy has been canceled by the California Insurance
Guarantee Association, the California Life and Health Insurance
Guarantee Association, or another association or entity performing a
similar function in another state.
(B) Any obligations to insurers, insurance pools, or underwriting
associations, and their claims for contribution, indemnity, or
subrogation, equitable or otherwise, except as otherwise provided in
this chapter.
(C) Any amount awarded as punitive or exemplary damages, and any
damages in excess of the liability limits of the policies or
contracts that represent damages for contractual bad faith.
(D) Any amount that is a surplus deposit of a subscriber as
defined in Section 1374.1.
(E) Any judgments against or obligations or liabilities of the
insolvent insurer otherwise arising from alleged or proven torts, and
any default, collusive, or stipulated judgment against either the
insured or the person subject to proceedings under this article, as
well as any judgment taken in violation of Section 1020. Nothing in
this subparagraph shall prohibit the commissioner from considering
the underlying claims as a claim entitled to priority under this
section, provided that the claimant shall provide to the commissioner
a written election that the judgment shall in all things be
disregarded in determining the liability for and valuation of the
underlying claim.
(F) Any loss adjustment expenses, including adjustment fees and
expenses, attorneys' fees and expenses, court costs, interest, bond
premiums, expert witness fees, and other claims of a similar nature
incurred prior to the appointment of a liquidator.
(G) Claims arising from any self-insured program of the insurer,
including employee life, health and annuity plans, and self-funded
employee benefit plans, however denominated, as well as claims
arising from a multiple employer welfare arrangement as defined in
Section 514 of the federal Employee Retirement Income Security Act of
1974, as amended, a minimum premium group insurance plan, a
stop-loss group insurance plan, or an administrative services-only
plan.
(H) Any portion of a policy or contract to the extent that it
provides experience rating credits or refunds, dividends, or for the
payment of fees or allowances to any person, including the
policyholder or contractholder, in connection with the service to or
administration of the policy or contract.
(I) Any annuity issued by a charitable organization for which the
person subject to these proceedings did not have or utilize a
certificate of authority to issue the policy or contract.
(3) Claims having preference by the laws of the United States.
(4) Unpaid charges due under the provisions of Section 736.
(5) Taxes due to the State of California.
(6) Claims having preference by the laws of this state.
(7) Claims of creditors not included in paragraphs (1) to (6),
inclusive.
(8) Certificates of contribution, surplus notes, or similar
obligations, and premium refunds on assessable policies.
(9) The interests of shareholders or other owners in any residual
value in the estate.
(b) (1) Every claim allowed under a separate account policy,
contract, or agreement providing, in effect, that the assets
allocated to the separate account are not chargeable with liabilities
arising out of any other business of the insurer, shall be satisfied
out of the assets properly allocated to and maintained in the
separate account, excluding amounts allocated or transferred to the
separate account by the insurer pursuant to subdivision (b) of
Section 10506, equal to the reserves maintained in the separate
account for the policies, contracts, or agreements. No liabilities of
the insurer arising out of any other business of the insurer shall
be satisfied from assets properly allocated to and maintained in a
separate account except (A) from amounts allocated or transferred to
the separate account pursuant to subdivision (b) of Section 10506 and
(B) from any assets allocated to the separate account that exceed
the reserves under the separate account policies, contracts, or
agreements. For the purposes of this subdivision, "separate account
policies, contracts, or agreements" means any policies, contracts, or
agreements that provide for separate accounts as contemplated by
Section 10506, 10506.3, 10506.4, or 10541. Any valid and allowed
claim for contractual benefits that cannot be satisfied out of the
assets properly allocated to and maintained in a separate account for
obligations authorized by subdivision (a) of Section 10506.3 shall
be included as a claim against the general account within paragraph
(2) of subdivision (a). Any valid and allowed claim against the
general account for contractual benefits under an obligation
authorized by Section 10506.4 shall be included as a claim within
paragraph (2) of subdivision (a).
(2) Notwithstanding any other provision of law, to the extent that
any assets of a life insurer, other than those assets properly
allocated to, and maintained in, a separate account, have been used
to fund or pay any expenses, taxes, or policyholder benefits that are
attributable to a separate account policy, contract, or agreement
that should have been paid by a separate account prior to the
commencement of delinquency proceedings, then upon the commencement
of delinquency proceedings, the separate accounts that benefited from
this payment or funding shall first be used to repay or reimburse
the company's general assets or account for any unreimbursed net sums
due at the commencement of delinquency proceedings prior to the
application of the separate account assets to the satisfaction of
liabilities of the corresponding separate account policies,
contracts, and agreements.
(c) Upon the issuance of an order appointing a conservator or
liquidator for any person under either Section 1011 or 1016 or both
these sections, the lien of taxes due to the State of California
imposed by Article 4 (commencing with Section 12491) of Chapter 4 of
Part 7 of Division 2 of the Revenue and Taxation Code shall become
subordinate to the reasonable administrative expenses of the
proceeding under the order.
(d) The following definitions are for purposes of this section
only and shall not be used to determine coverage under the California
Life and Health Insurance Guarantee Association Act (Article 14.7
(commencing with Section 1067)):
(1) "Funding agreements" means those agreements authorized to be
delivered or issued pursuant to Section 10541.
(2) "Annuity" means only those annuity contracts, including
period-certain annuities issued by a life insurer, that require for
their lawful issuance a certificate of authority from the
commissioner, and excludes without limitation all instruments for
which the commissioner's certificate of authority is not required,
such as promissory notes, installment loans, negotiable instruments,
mortgages, and debentures.
(3) Reinsurance contracts shall not be included as insurance or
annuity policies or contracts, or funding agreements. However, any
insurance or annuity policy or contract, including any funding
agreement, that is assumed by an insurer under an assumption
reinsurance agreement pursuant to a plan of liquidation,
rehabilitation, or reorganization shall, unless the plan provided
otherwise, be deemed to retain the issue date of the original
insurance or annuity policy or contract, or funding agreement that is
assumed.
(e) The provisions of this section are severable. If any portion
of this section is held invalid or is preempted by federal law, the
remainder of the section and its application shall not be affected.
Specifically, should any of paragraphs (1) to (6), inclusive, of
subdivision (a) be held to be invalid or preempted by federal law,
the claims included within the invalid paragraph shall be included
within paragraph (7) of subdivision (a), and the remaining paragraphs
shall not be affected thereby.
(f) No payment shall be made to any creditor in paragraphs (8) or
(9) of subdivision (a), unless all claims in paragraphs (3) to (7),
inclusive, of subdivision (a) have been paid in full, together with
interest at the legal rate of the date of the order commencing the
proceeding or the date on which the claim became liquidated,
whichever date is later. In proceedings involving life insurance
companies, no payment shall be made for any claim in paragraph (7),
(8), or (9) of subdivision (a) unless and until all claims in
paragraph (1) of subdivision (a) have been paid in full, together
with interest at the legal rate, all claims in paragraph (2) of
subdivision (a) have been paid the full value of the policy or
contract upon which the claim is based, as of the time of
distribution to claimants, and all claims in paragraphs (3) to (6),
inclusive, of subdivision (a) have been paid in full, together with
interest at the legal rate from the date of the order commencing the
proceeding. Notwithstanding the provisions of this subdivision, no
payment of interest shall be made to any insurance guaranty
association that receives early access disbursements from the estate
pursuant to Section 1035.5.

1033.5. (a) The purpose of this section is to clarify the rights
and obligations of policyholders, claimants, guaranty funds,
including the California Insurance Guarantee Association, and the
liquidator with respect to a deductible agreement entered into
between a policyholder and an insurer subject to liquidation
proceedings under this article. These arrangements are commonly
referred to as "large deductible" policies or programs, even though
the actual amount of the deductible can vary significantly and may
not be in fact large in amount. Deductible amounts under these
arrangements may vary from as little as five thousand dollars
($5,000) to as much as $1,000,000 or more. This section shall be
construed such that the claim payment obligations of the guaranty
associations, including the California Insurance Guarantee
Association, in total arising from deductible agreements will be
substantially equivalent to those of the insurer, except as provided
otherwise in each guaranty association's enabling statute, including
that of the California Insurance Guarantee Association, had the
insurer continued in business and not become subject to a liquidation
proceeding.
(b) Notwithstanding any other provision of law or contract to the
contrary, any collateral held by or for the benefit of, or assigned
to, the insurer or the liquidator to secure the obligations of a
policyholder under a deductible agreement and any reimbursement
payments to the liquidator under a deductible agreement shall be
considered property of the liquidated company, but shall not be
general assets of the liquidated company. The liquidator shall
maintain, administer, and distribute all such collateral and
deductible reimbursement payments only as provided in this section.
(c) If a claim that is subject to a deductible agreement and
secured by collateral is not covered by a guaranty association or the
California Insurance Guarantee Association and the policyholder is
unwilling or unable to take over the handling and payment of the
noncovered claims, the liquidator shall adjust and pay the noncovered
claims utilizing the collateral, but only to the extent the
available collateral, after allocation under subdivision (d), is
sufficient to pay all outstanding and anticipated claims. If the
collateral is exhausted and the policyholder is not able to provide
funds to pay the remaining claims within the deductible after all
reasonable means of collection against the policyholder have been
exhausted, the remaining claims shall be claims against the insurer's
estate, subject to the other provisions of this article regarding
the filing and allowance of claims. When the liquidator determines
that the collateral is insufficient to pay all additional and
anticipated claims, the liquidator may file a plan for equitably
allocating the collateral among claimants, subject to court approval.
(d) (1) To the extent that the liquidator holds collateral
provided by a policyholder that was obtained to secure a deductible
agreement and to secure other obligations of the policyholder to pay
the insurer, directly or indirectly, amounts that become assets of
the estate, such as reinsurance obligations under a captive
reinsurance program or adjustable premium obligations under a
retrospectively rated insurance policy or where the premium due is
subject to adjustment based upon actual loss experience, the
liquidator shall equitably allocate the collateral among those
obligations and administer the collateral allocated to the deductible
agreement pursuant to this section.
(2) With respect to the collateral allocated to obligations under
the deductible agreement, if the collateral secured reimbursement
obligations under more than one line of insurance, then the
collateral shall be equitably allocated among the various lines based
upon the estimated ultimate exposure within the deductible amount
for each line.
(3) The liquidator shall inform the guaranty associations or the
California Insurance Guarantee Association that is or may be
obligated for claims against the insurer of the method and details of
each allocation made pursuant to this subdivision.
(4) The liquidator shall be entitled to deduct from the collateral
or from the deductible reimbursements reasonable and actual expenses
incurred in connection with the collection of the collateral and
deductible reimbursements under this section.
(e) (1) Regardless of whether there is collateral, if the
insolvent insurer has contractually agreed to allow the policyholder
to fund its own claims within the deductible amount pursuant to a
deductible agreement, either through the policyholder's own
administration of its claims or through its provision of funds
directly to a third-party administrator who administers the claims,
the liquidator shall allow the funding arrangement to continue and,
where applicable, shall enforce the arrangement to the fullest extent
possible. The funding of any of these claims by the policyholder
within the deductible amount, including, but not limited to, any of
these claims by the policyholder or the third-party claimant, shall
bar a claim for that amount in the liquidation proceeding.
(2) The funding of claims pursuant to paragraph (1) shall
extinguish the obligation, if any, of a guaranty association or the
California Insurance Guarantee Association to pay the claims within
the deductible amount, as well as the obligation, if any, of the
policyholder or third-party administrator to reimburse the guaranty
association or the California Insurance Guarantee Association. No
charge of any kind shall be made by the liquidator against any
guaranty association or the California Insurance Guarantee
Association on the basis of the policyholder funding of claims
payment made pursuant to the mechanism set forth in this subdivision.
The funding of these claims by the policyholders shall not limit or
prejudice any right the guaranty association or the California
Insurance Guarantee Association may have with respect to these claims
under state law. Any policyholder that funds its own claims under
the provisions of this subdivision shall provide to the guaranty
association or to the California Insurance Guarantee Association all
relevant information concerning the claim whenever the policyholder's
reserved liability for the claim equals or exceeds 50 percent of the
deductible amount on the claim.
(f) (1) If the insurer has not contractually agreed to allow the
policyholder to fund its own claims within the deductible amount, to
the extent a guaranty association or the California Insurance
Guarantee Association is required by applicable state law to pay any
claims for which the insurer would be or would have been entitled to
reimbursement from the policyholder under the terms of the deductible
agreement, and to the extent the claims have not been paid by a
policyholder or third party, the liquidator shall promptly bill the
policyholder for the reimbursement. The policyholder shall pay that
amount to the liquidator for the benefit of the California Insurance
Guarantee Association or the guaranty association that paid the
claims. Neither the insolvency of the insurer, nor its inability to
perform any of its obligations under the deductible agreement, shall
be a defense to the policyholder's reimbursement obligation under the
deductible agreement.
(2) When the policyholder reimbursements pursuant to paragraph (1)
are collected, the liquidator shall promptly reimburse the guaranty
association or the California Insurance Guarantee Association for
claims paid that were subject to the deductible. If the policyholder
fails to pay the amounts due within 60 days after the bill for the
reimbursements is due, the liquidator shall use the collateral to the
extent necessary to reimburse the guaranty association or the
California Insurance Guarantee Association, and, at the same time,
may pursue other collections efforts against the policyholder. If
more than one guaranty association or the California Insurance
Guarantee Association has a claim against the same collateral, and
the available collateral, after allocation under subdivision (d),
along with billing and collection efforts, are together insufficient
to pay each guaranty association or the California Insurance
Guarantee Association in full, then the liquidator shall prorate
payments to each guaranty association or the California Insurance
Guarantee Association based upon the relationship the amount of
claims each guaranty association or the California Insurance
Guarantee Association has paid bears to the total of all claims paid
by the guaranty association or the California Insurance Guarantee
Association.
(g) (1) With respect to claim payments made by any guaranty
association or the California Insurance Guarantee Association, the
liquidator shall promptly provide the court, with a copy to the
guaranty association or the California Insurance Guarantee
Association, with a complete report of the liquidator's deductible
billing and collection activities, including copies of the
policyholder billings when rendered, the reimbursements collected,
the available amounts and use of collateral for each policyholder,
and any proration of payments when it occurs. If the liquidator fails
to make a good faith effort, within 120 days of receiving a claims
payment report, to collect reimbursements due from a policyholder
under a deductible agreement based on claim payments made by one or
more guaranty associations or the California Insurance Guarantee
Association, then the guaranty association or the California
Insurance Guarantee Association may pursue collection from the
policyholders directly on the same basis as the liquidator, and with
the same rights and remedies, and shall report any amounts so
collected from each policyholder to the liquidator. To the extent
that the guaranty association or the California Insurance Guarantee
Association pays claims within the deductible amount, but is not
reimbursed by the liquidator under this section or by policyholder
payments from the collection efforts of the guaranty association or
the California Insurance Guarantee Association, the guaranty
association or the California Insurance Guarantee Association shall
have a claim against the insolvent insurer's estate for the
unreimbursed claims payments.
(2) The liquidator shall periodically adjust the collateral being
held as the claims subject to the deductible agreement are satisfied,
provided that adequate collateral is maintained to secure the entire
estimated ultimate obligation of the policyholder plus a reasonable
safety factor, and provided further that the liquidator shall not be
required to adjust the collateral more than once a year. The guaranty
associations or the California Insurance Guarantee Association shall
be informed of any collateral adjustment, including but not limited
to, the basis for the adjustment. Once all claims covered by the
collateral have been paid and the liquidator is satisfied that no new
claims can be presented, the liquidator shall release any remaining
collateral to the policyholder.
(h) The court having jurisdiction over the liquidation proceedings
shall have jurisdiction to resolve disputes arising under this
provision.
(i) Nothing in this section is intended to limit or adversely
affect any right a guaranty association or the California Insurance
Guarantee Association may have under applicable state law to obtain
reimbursement from certain classes of policyholders for claims
payments made by the guaranty association or the California Insurance
Guarantee Association under policies of the insolvent insurer, or
for related expenses the guaranty association or the California
Insurance Guarantee Association incur.
(j) This section shall apply only with respect to insolvencies
occurring on or after January 1, 2006.
(k) For purposes of this section, the following definitions apply:
(1) "Collateral" means any form of security held to secure the
obligations of a policyholder under a deductible agreement with an
insurer subject to an order of liquidation under this article.
(2) "Deductible agreement" means any policy, endorsement,
contract, or security agreement, or a combination of any of those
items, that provides for the policyholder to bear the risk of loss
within a specified amount per claim or occurrence covered under a
policy of insurance, and may be subject to the aggregate limit of
policyholder reimbursement obligations.
(3) "Noncovered claim" means a claim that is subject to a
deductible agreement and is not covered by a guaranty association or
the California Insurance Guarantee Association.
(l) This section shall apply to claims funded by a guaranty
association or the California Insurance Guarantee Association in
excess of the deductible only if subdivision (e) is applicable.

1034. (a) A preference is a transfer of any of the property of the
person proceeded against to or for the benefit of a creditor, for or
on account of an antecedent debt, made or suffered by the person
proceeded against within one year before the filing of a petition for
liquidation pursuant to Section 1016, the effect of which transfer
may be to enable the creditor to obtain a greater percentage of this
debt than another creditor of the same class would receive. The
following transactions shall be among those that may be considered a
preference:
(1) A transfer of property of the person proceeded against.
(2) The creation of a lien on the property of the person proceeded
against.
(3) The entry of a judgment against the person proceeded against.
(4) The transfers or other payments by the person proceeded
against pursuant to subdivision (f) of Section 10506 in support of
guarantees contemplated by Section 10506.4.
(b) If a liquidation order is entered pursuant to Section 1016
while the person proceeded against is already subject to a
conservation order, then the transfers described in subdivision (a)
shall be deemed preferences if made or suffered within one year
before the filing of the successful petition for conservation, or
within two years before the filing of the successful petition for
liquidation, whichever time is shorter.
(c) Any preference may be avoided by the liquidator if any of the
following is applicable:
(1) The transfer was made within four months before the filing of
the petition.
(2) The creditor receiving the transfer or to be benefited thereby
or his or her agent acting with reference thereto had, at the time
when the transfer was made, reasonable cause to believe that the
person proceeded against was insolvent or was about to become
insolvent.
(3) The creditor receiving the transfer was an officer, or any
employee or attorney or other person who was in fact in a position of
comparable influence in the person proceeded against to an officer,
whether or not the person held that position, or any shareholder
holding directly or indirectly more than 5 percent of any class of
any equity security issued by the person proceeded against, or any
other person, firm, corporation, association, or aggregation of
persons with whom the person proceeded against did not deal at arm's
length.
(d) Where the preference is voidable, the liquidator may recover
the property or, if it has been converted, its value from any person
who has received or converted the property; except where a bona fide
purchaser or lienor has given less than fair equivalent value, the
purchaser or lienor shall have a lien upon the property to the extent
of the consideration actually given. Where a preference by way of
lien or security title is voidable, the court may on due notice order
the lien or title to be preserved for the benefit of the estate, in
which event the lien or title shall pass to the liquidator.

1034.1. (a) Every transfer made or suffered and every obligation
incurred by a person proceeded against within one year prior to the
filing of a successful petition for conservation or liquidation under
this article is fraudulent as to then existing and future creditors
if made or incurred without fair consideration, or with actual intent
to hinder, delay, or defraud either existing or future creditors.
(b) A transfer made or an obligation incurred by a person
proceeded against under this article, which is fraudulent under this
section, may be avoided by the commissioner, except as to a person
who in good faith is a purchaser, lienor, or obligee for a present
fair equivalent value, and except that any purchaser, lienor, or
obligee, who in good faith has given a consideration less than fair
for that transfer, lien, or obligation, may retain the property,
lien, or obligation as security for repayment. The court may, on due
notice, order any such transfer or obligation to be preserved for the
benefit of the estate, and in that event, the commissioner shall
succeed to and may enforce the rights of the purchaser, lienor, or
obligee.
(1) A transfer of property other than real property shall be
deemed to be made or suffered when it becomes so far perfected that
no subsequent lien obtainable by legal or equitable proceedings on a
simple contract could become superior to the rights of the
transferee.
(2) A transfer of real property shall be deemed to be made or
suffered when it becomes so far perfected that no subsequent bona
fide purchaser from the person proceeded against could obtain rights
superior to the rights of the transferee.
(3) A transfer that creates an equitable lien shall not be deemed
to be perfected if there are available means by which a legal lien
could be created.
(4) Any transfer not perfected prior to the filing of a petition
for liquidation shall be deemed to be made immediately before the
filing of the successful petition.
(5) The provisions of this subdivision apply whether or not there
are or were creditors who might have obtained any liens or persons
who might have become bona fide purchasers.
(c) Every person receiving any property from the person proceeded
against or any benefit thereof that is a fraudulent transfer under
subdivision (a) shall be personally liable therefor and shall be
bound to account to the commissioner.
(d) Any transaction of the person proceeded against with a
reinsurer shall be subject to avoidance by the commissioner under
subdivision (b) if both of the following are applicable:
(1) The transaction consists of the termination, adjustment, or
settlement of a reinsurance contract in which the reinsurer is
released from any part of its duty to pay the originally specified
share of losses that had occurred prior to the time of the
transaction, unless the reinsurer gives a present fair equivalent
value for the release.
(2) Any part of the transaction took place within one year prior
to the date of filing of the petition through which the conservation
or liquidation was commenced.
The commissioner may avoid the transaction at any time within two
years after the effective date of the transaction. If the transaction
is so avoided, the parties shall be returned to their respective
position as if the transaction had not occurred, and the commissioner
may enforce the reinsurance contract as it existed prior to the
transfer.

1035. (a) In any proceeding under this article, the commissioner
may appoint and employ under his or her hand and official seal,
special deputy commissioners, as his or her agents, and to employ
clerks and assistants and to give to each of them those powers that
he or she deems necessary. Upon appointing or employing special
deputy commissioners, clerks, or assistants, the commissioner shall
notify the Chair of the Joint Budget Committee of the Legislature, by
letter, of the action. The costs of employing special deputy
commissioners, clerks, and assistants appointed to carry out this
article, and all expenses of taking possession of, conserving,
conducting, liquidating, disposing of, or otherwise dealing with the
business and property of that person under this article, shall be
fixed by the commissioner, subject to the approval of the court, and
shall be paid out of the assets of that person to the department. In
the event the property of that person does not contain cash or liquid
assets sufficient to defray the cost of the services required to be
performed under the terms of this article, the commissioner may at
any time or from time to time pay the cost of those services out of
the appropriation for the maintenance of the department, but not out
of the assets of other estates. Any amounts so paid shall be deemed
expenses of administration and shall be repaid to the fund out of the
first available moneys in the estate.
(b) Any person appointed by the commissioner to serve in the
capacity of chief executive officer of the department's Conservation
and Liquidation Office shall be subject to confirmation by the
Senate.

1035.2. (a) The officers and employees of the Conservation and
Liquidation Office are subject to all conflict-of-interest provisions
and financial disclosure requirements that would apply if they were
employees of the department.
(b) (1) Prior to February 1, 2002, the department shall determine,
pursuant to the provisions of Section 19990 of the Government Code,
those activities of the officers and employees of the Conservation
and Liquidation Office that are inconsistent, incompatible, or in
conflict with their duties as officers or employees of that office.
(2) Prior to February 1, 2002, the department shall adopt and
promulgate a Conflict of Interest Code pursuant to the provisions of
Article 3 (commencing with Section 87300) of Chapter 7 of Title 9 of
the Government Code, pertaining to the officers and employees of the
Conservation and Liquidation Office. The Conflict of Interest Code
and any other regulations necessary to implement this section shall
be promulgated by the department as emergency regulations.
(c) The provisions of Chapter 7 (commencing with Section 87100) of
Title 9 of the Government Code shall apply to a person who contracts
with the Conservation and Liquidation Office to the same extent as
would apply if that person were entering into the same or similar
contractual relationship with the department.
(d) The department shall ensure that the officers and employees of
the Conservation and Liquidation Office and persons who contract
with that office comply with all provisions of this section.

1035.5. Notwithstanding the provisions of Article 14 (commencing
with Section 1010), with regard only to those insurers subject to
this article:
(a) Within 120 days of the issuance of an order directing the
winding up and liquidation of the business of an insolvent insurer
under Section 1016, the commissioner shall make application to the
court for approval of a proposal to disburse the insurer's assets,
from time to time as such assets become available, to the California
Insurance Guarantee Association, or the California Life and Health
Insurance Guarantee Association, and to any entity or person
performing a similar function in another state.
(b) The proposal shall at least include the following provisions
for:
(1) Reserving amounts for the payment of expenses of
administration and the payment of claims of secured creditors (to the
extent of the value of the security held) and claims falling within
the priorities established in paragraphs (1) to (4), inclusive, of
subdivision (a) of Section 1033.
(2) Disbursement of the assets marshaled to date and subsequent
disbursements of assets as they become available.
(3) Equitable allocation of disbursements to each of the
associations entitled thereto.
(4) The securing by the commissioner from each of the associations
entitled to disbursements pursuant to this section of an agreement
to return to the commissioner such assets previously disbursed as may
be required to pay claims of secured creditors and claims falling
within the priorities established in paragraphs (1) to (5),
inclusive, of subdivision (a) of Section 1033 in accordance with the
priorities. No bond shall be required of any association.
(5) A full report to be made by the association to the
commissioner accounting for all assets so disbursed to the
association, all disbursements made therefrom, any interest earned by
the association on the assets, and any other matter as the court may
direct.
(c) The commissioner's proposal shall provide for disbursements to
the associations in amounts estimated at least equal to the claim
payments made or to be made by the associations for which such
associations could assert a claim against the commissioner, and shall
further provide that if the assets available for disbursement from
time to time do not equal or exceed the amount of the claim payments
made or to be made by the associations, then disbursements shall be
in the amount of available assets. The reserves of the insolvent
insurer on the date of the order of liquidation shall be used for
purposes of determining the pro rata allocation of funds among
eligible associations.
(d) The commissioner shall offset the amount disbursed to any
entity or person performing a function in any other state similar to
that function performed by the California Insurance Guarantee
Association, or the California Life and Health Insurance Guarantee
Association, by the amount of any statutory deposit, premiums, or any
other asset of the insolvent insurer held in that state.
(e) Notice of such application shall be given to the associations
in and to the commissioners of insurance of each of the states. Any
such notice shall be deemed to have been given when deposited in the
United States certified mails, first-class postage prepaid, at least
30 days prior to submission of such application to the court. Action
on the application may be taken by the court provided the above
required notice has been given and provided further that the
commissioner's proposal complies with paragraphs (1) and (4) of
subdivision (b).

1036. Notwithstanding any other provision of law, the provisions of
Article 4 (commencing with Section 11040) of Chapter 1 of Part 1 of
Division 3 of Title 2 of the Government Code, pertaining to legal
services, shall apply in the institution and prosecution of all
insurance delinquency proceedings under this code. The compensation
of any counsel outside of California state service who is employed
pursuant to these provisions to represent the commissioner as
receiver shall be fixed by the commissioner, subject to the approval
of the court. Compensation of counsel representing the commissioner
as receiver shall be paid from the assets of the person against whom
the commissioner has proceeded under this article. It is the intent
of the Legislature and the Legislature finds it is in the best
interest of the people of the State of California that the Attorney
General and the Insurance Commissioner consult and cooperate in
regard to utilizing agency counsel of the Department of Insurance as
the commissioner's legal counsel in delinquency proceedings, judicial
and otherwise, to the extent appropriate and consistent with the
interests of the parties beneficially interested in those proceedings
and if that use would result in the savings of costs to the parties
beneficially interested in those proceedings.

1037. Upon taking possession of the property and business of any
person in any proceeding under this article, the commissioner,
exclusively and except as otherwise expressly provided by this
article, either as conservator or liquidator:
(a) Shall have authority to collect all moneys due that person,
and to do such other acts as are necessary or expedient to collect,
conserve, or protect its assets, property, and business, and to carry
on and conduct the business and affairs of that person or so much
thereof as to him or her may seem appropriate.
(b) Shall collect all debts due and claims belonging to that
person, and shall have the authority to sell, compound, compromise,
or assign, for the purpose of collection upon such terms and
conditions as the commissioner deems best, any bad or doubtful debts.
(c) Shall have authority to compound, compromise or in any other
manner negotiate settlements of claims against that person upon such
terms and conditions as the commissioner shall deem to be most
advantageous to the estate of the person being administered or
liquidated or otherwise dealt with under this article.
(d) Shall have authority without notice, to acquire, hypothecate,
encumber, lease, improve, sell, transfer, abandon, or otherwise
dispose of or deal with, any real or personal property of that person
at its reasonable market value, or, in cases other than acquisition,
sale, or transfer on the basis of reasonable market value, upon such
terms and conditions as the commissioner may deem proper. However,
no transaction involving real or personal property shall be made
where the market value of the property involved exceeds the sum of
twenty thousand dollars ($20,000) without first obtaining permission
of the court, and then only in accordance with any terms that court
may prescribe.
(e) Shall have authority to transfer to a trustee or trustees,
under a voting trust agreement, the stock of an insurer heretofore or
hereafter issued to the commissioner as conservator or as liquidator
in connection with a rehabilitation or reinsurance agreement, or any
other proceeding under this article. This voting trust agreement
shall confer upon the trustee or trustees the right to vote or
otherwise represent that stock, and shall not be irrevocable for a
period of more than 21 years.
(f) May, for the purpose of executing and performing any of the
powers and authority conferred upon the commissioner under this
article, in the name of the person affected by the proceeding or in
the commissioner's own name, prosecute and defend any and all suits
and other legal proceedings, and execute, acknowledge and deliver any
and all deeds, assignments, releases and other instruments necessary
and proper to effectuate any sale of any real and personal property
or other transaction in connection with the administration,
liquidation, or other disposition of the assets of the person
affected by that proceeding; and any deed or other instrument
executed pursuant to the authority hereby given shall be valid and
effectual for all purposes as though it had been executed by the
person affected by any proceeding under this article or by its
officers pursuant to the direction of its governing board or
authority. In cases where any real property sold by the commissioner
under this article is located in a county other than the county
wherein the proceeding is pending, the commissioner shall cause a
certified copy of the order of his or her appointment, or order
authorizing or ratifying the sale, to be filed in the office of the
county recorder of the county in which that property is located.
(g) Shall have authority to invest and reinvest, in such manner as
the commissioner may deem suitable for the best interests of the
creditors of that person, such portions of the funds and assets of
that person in his or her possession as do not exceed the amount of
the reserves required by law to be maintained by that person as
reserves for life insurance policies, annuity contracts,
supplementary agreements incidental to life business, and reserves
for noncancellable disability policies, and which funds and assets
are not immediately distributable to creditors. However, no
investment or reinvestment shall be made which exceeds the sum of one
hundred thousand dollars ($100,000) without first obtaining
permission of the court, and then only in accordance with any terms
that court may prescribe. That permission shall not be required for
any investment or reinvestment of those funds or assets in funds
administered by the Treasurer.
The enumeration, in this article, of the duties, powers and
authority of the commissioner in proceedings under this article shall
not